Free Trade Agreements

From VietnamPlus


Research group IBON said that the Philippine government should promote and protect Filipino industry instead of pursuing one-sided free trade agreements (FTAs). This is after Regional Comprehensive Economic Partnership (RCEP) participating countries recently said that the regional trade deal would continue their strong economic performance. According to IBON, the government should only enter economic deals with countries on the basis of equal footing and mutual cooperation to benefit the Filipino people and domestic economy more than big foreign firms.

Heads of state from the Association of Southeast Asian Nations (ASEAN) and its trade partners such as China, Japan, India, Korea, Australia, and New Zealand attended what is called the first RCEP Summit.  The meeting aimed to ensure participating countries’ commitment to swiftly conclude the regional trade deal by early next year.  In a joint statement, the countries’ leaders claimed that trade openness and regional economic integration have cushioned their economies from the global financial crisis, increasing protectionism, and opposition to globalization. They also said that the RCEP would increase economic growth and resiliency, improve people’s living standards, and result in development.

IBON said however that decades of one-sided FTAs with the same neoliberal framework have only weakened the Philippine economy and prevented development. The share of production in the gross domestic product (GDP) fell from some 60% in the 1950s to only 39.2% in 2016. During the same period, agriculture declined from more than 30% to 9.2 percent. Manufacturing share also fell to 24.3% of GDP, aside from becoming increasingly dominated by foreign transnational corporations (TNCs).

The lives of the Filipino people have not improved. There are 11.5 million unemployed and underemployed Filipinos as of 2016. Some 66 million Filipinos live on Php125.00 or less per day, while 21.9 million struggle to live on Php60.00 per day.

The group also noted that RCEP trade partners Japan, China, Australia, and India continue to implement protectionist measures. A 2017 Global Trade Alert Report found that the G20 (Group of 20) — which is composed of the world’s largest and emerging economies, including said RCEP trade partners — have increasingly resorted to protectionist policies since the 2008 global financial crisis. The G7 (Group of 7) industrialized countries in particular accounted for a growing share of the G20’s protectionist measures.

IBON also noted that among the reasons that RCEP’s targeted completion in 2017 will not be met is because India insists on its right to protect its economy from the expected deluge of Chinese products once it accedes to the 92% trade in goods liberalization stipulated in RCEP.

IBON said that protectionism by the advanced industrialized powers and even developing countries should prompt the Philippine government to reconsider its involvement in the one-sided RCEP. The Philippine government should instead prioritize building the country’s own strong and self-reliant economy as a premise in pursuing any foreign relations.

The group said that the Duterte administration should seek or otherwise build bilateral, regional and multilateral deals that support the development aspirations of underdeveloped countries. International deals should not reduce underdeveloped trade partners to being mere suppliers of cheap labor and raw materials, nor keep them captive market that foreign firms dump their products in.


By Audrey De Jesus

Free trade agreements (FTAs) is a major agenda item for countries attending the 31st Association of Southeast Asian Nations (ASEAN) Summit. whether at the meeting proper or the sidelines. Contrary to the projection that FTAs promote partnerships for development, however, these FTAs are becoming more and more one-sided.

As the world financial crisis persists, developed countries like the United States and China are taking increasingly protectionist stances to further the interests of their big local firms and economies. At the same time, they are also aggressively pursuing the further liberalization of less developed countries like the Philippines through multi- or bilateral trade deals that open up their economies and resources to even more corporate plunder.

Increasing protectionism

There has been a trend of increasing protectionism particularly among the world’s largest economies. Though not new, the rise in protectionism further indicates that globalization is not working.  The FTAs forged have not really been about “leveling the playing field” and helping smaller economies develop, but making it easier for big corporations, mainly from developed countries, to do business and reap profits.

Such protectionism refers to economic policy where governments employ various methods such as import tariffs and quotas and state subsidies to restrict trade between countries, usually to protect or fortify a country’s domestic industries from foreign competitors.

Still struggling to recover from the 2008 financial crisis, industrialized countries are resorting even more to protectionist policies to the detriment of less developed countries like the Philippines.

Data from Global Trade Alert (GTA)’s website shows that since the 2008 global financial crisis, the number of new protectionist measures implemented by all countries per year has risen from 295 in 2009 to 585 in 2017, an increase of 89.3 percent. This is the second highest since 2015 with 612 new protectionist measures.  New liberalizing measures implemented had a faster growth rate at 97.2% from 2009 to 2016. But these measures are still comparatively less year-on-year than new protectionist measures implemented. Liberalizing measures numbered only 248 in 2015, and 215 in 2016.

According to the 21st GTA Report, members of the Group of 20 (G20), which is made up of the world’s largest and emerging economies, are resorting more and more to protectionist measures. Meanwhile, the Group of 7 (G7) countries plus Australia, accounted for an increasing share of the group’s protectionism. These largest industrialized country members of the G20 accounted for 39.2% of protectionist measures in 2015, which grew to 46.9% of in 2016, and 54.9% in 2017.

Of the G20 members, the United States government has implemented the most protectionist measures at almost 1,250 policy instruments since November 2008. The US was followed by India, Russia, Argentina and Germany.  The United Kingdom, Japan and China came in seventh, eleventh and twelfth among the G20 resorting to protectionist measures.

US’s blatant protectionism

Bannering the slogans “America First” and “Make America Great Again”, US Pres. Donald Trump has made his protectionist stance loud and clear. His administration has already taken several steps to address what it calls “unfair trade deals” allegedly behind the US’s mounting trade deficit and American job losses.

Trump has already withdrawn or threatened to withdraw from regional or multilateral trade agreements. One of the first things Trump did as president was to withdraw from the Trans-Pacific Partnership. More recently, Trump also threatened to walk away from the North American Free Trade Agreement (NAFTA) the US has with Mexico and Canada if more favorable trade terms for the US are not reached. Among the controversial US proposals is a sunset clause if NAFTA is not renegotiated every five years, the removal of a dispute resolution mechanism, and including in the rules origin at least 50% US content of automobiles to avail of zero tariffs.

Wary of multilateral trade agreements, Trump is now prioritizing bilateral talks to gain better trade deals for the US. For instance, South Korea agreed to enter renegotiations of the Korean-US (KORUS) trade deal next year, as well as pledged to buy billions of dollars-worth of US arms during Trump’s visit to the country. Of course, South Korea may have been pressured to enter renegotiations for fear that Trump would make good on threats to rescind their trade deal.

Trump is also cracking down on countries it feels are committing trade violations to the detriment of US interests. The US Commerce Department recently imposed a more than 200% tariff on the CSeries jet of Canadian aircraft maker Bombardier. This was after Boeing filed a case against Bombardier for receiving unfair subsidies from the Canadian government that allowed them to sell their jets at low prices. Last August, Trump also signed an executive memorandum ordering the investigation of China for unfairly acquiring US technology and intellectual property in violation of trade regulations. If proven, the US will pursue penalties against China. To enforce such measures, Trump has appointed a trade team of known for their strong protectionist leanings, particularly against China.

The GTA further confirmed in its June 2017 report that US trade policy has become more protectionist and less liberalizing compared to the previous year.

China’s covert protectionism

At the World Economic Forum in January earlier this year, China’s President Xi Jinping pronounced China as a “champion of globalization”. In other words, it would fill the vacuum the US left after it withdrew from the TPP and lead in advancing the neoliberal agenda globally. China has also been a critic of the US’s increasingly protectionist measures. However, despite such proclamations, recent China policies reveal that it too is taking a more protectionist stance.

A prime example of this is “Made in China 2025”.  According to a US Chamber of Commerce report, “Made in China 2025”, released in 2015, is the China government’s blueprint to strengthen and build its domestic industries, and make it a global manufacturing leader. It is also in accordance with China’s 13th Five-Year Plan, among other state-led development plans.

Under “Made in China 2025”, ten strategic industries are targeted: agricultural machinery and equipment; aerospace and aviation equipment; energy-saving and new energy vehicles; next generation information technology; high-end numerical control machinery and robotics; maritime engineering equipment and high-tech maritime vessel manufacturing; advanced rail equipment; electrical equipment; new materials; and biomedicine and high-performance medical devices.

The plan aims to build or strengthen these local industries so that foreign technology and products can be replaced with domestic ones. To do so, it is employing what the US and European Union have criticized as trade-distorting protectionist policies and methods. These include, among others, preferential support like subsidies and capital to local corporations, buy-local requirements, requiring technology transfers from foreign firms to do business in China, and state-led or state-directed investment in foreign firms abroad.

GTA data indicates that protectionist measures enacted by the China government in the past five years grew by 45.9% from 181 protectionist policy instruments to 264 in 2017.

On the losing end

In contrast, less developed countries like the Philippines have had to follow neoliberal dictates and open-up their economies under one-sided trade deals. The Philippine government, for instance, has long complied with globalization mandates including “integration” under ASEAN. But this has only stunted the country’s economic development, and worsened poverty and joblessness.

For instance, trade liberalization has reduced tariffs to lowest levels and worsened Philippine trade deficits, significantly in food and agriculture. The country has among the lowest agricultural tariffs in Asia at 0-7% in food and agricultural products, except for rice, this year. Meanwhile, the share of agriculture and manufacturing in gross domestic product (GDP) have shrunk to 18% and 9%, respectively, as of 2016. Over 11 million Filipinos are either jobless or underemployed. Real wages are falling. Extreme poverty grips a fifth of the population.

In this climate of rising protectionism amongst the world’s industrialized economies, countries like the Philippines can only expect even more one-sided FTAs, whether regional, multilateral or bilateral. As the past four decades of globalization have proven, the Philippines has been on the losing end and stands to lose even more if it stays the course of neoliberal framework.

However, the Duterte administration appears to not only be staying the course, but trying to fast track it through the enactment of even worse neoliberal policies that cater to big foreign corporate interests. On his to do list is his regressive Comprehensive Tax Reform Package, Build Build Build infrastructure program, the Public Utilities Act, and the lifting of foreign restrictions through Charter change, to name a few.

The government should not be seeking help from global powers who are responsible for the world’s globalization woes in the first place, and are pursuing the same old failed market-driven policies. Instead it should take decisive steps to protect the Philippine economy and the Filipino people’s welfare towards the genuine development of domestic industries. ###



By Casey Salamanca

On its 50th year, and under Philippine chairmanship, the Association of South East Asian Nations or ASEAN is being hyped to have brought development to its member countries. Themed “Partnering for Change, Engaging the World” for 2017, the convergence of ASEAN’s ten-member countries and its dialogue partners is anticipated to bolster the regional economy and its contribution to the global market.

Beyond the government-declared week-long holidays in Metro Manila in the duration of the ASEAN meetings, this is an opportune time to note how ASEAN has only been “One Communty” for the big players of the global market and not for the region’s peoples:

1.       Selling the region’s resources through policies

One of ASEAN’s most compliant member-nations, Philippine economic policy for the past three decades has opened the economy ever wider for global economic powers to benefit from cheap natural resources, cheap labor and captive markets through various laws. These include the Foreign Investments Act, Retail Trade Liberalization Act of 2000 and the Philippine Mining Act of 1995.

Past administrations as well as the current Duterte administration have also always been persistent on changing the Constitution to remove remaining economic protection and restrictions to trade and investment. Duterte’s economic managers are determined to shorten the Foreign Investments Negative List (FINL) and open more sectors such as telecommunications, the media, education and business enterprises to foreign ownership by the end of the year. The ASEAN’s push for further economic liberalization is also evident in the administrations’ list of priority bills like the Ease of Doing Business Act. Aside from this, the government will also streamline customs procedures and create a National Single Window linked to ASEAN’s planned Single Window.

This is in accordance with the ASEAN Economic Community’s (AEC) aim to create an ‘open ASEAN’ even to non-ASEAN member countries. Its primary objective is to “transform ASEAN into a single market and production base, a highly competitive region, a region of equitable economic development, and a region fully integrated into the global economy”.  Regardless of unequal levels of development, ASEAN countries have been entering various agreements liberalizing trade in goods, investments and services. It has also started negotiating as a bloc: the Regional Comprehensive Economic Partnership (RCEP), the mega-FTA between ASEAN and the six countries it has an FTA with – China, Japan, South Korea, Australia, New Zealand and India, is currently under negotiation.

2.       Expanding trade and investment in sectors vital to business but not to national development

AEC made doing business easy for TNCs but has disregarded supporting real development for its underdeveloped members like the Philippines, Vietnam and Cambodia. These economies have not actually improved significantly to finally become “developed”.

ASEAN boasts of its relatively stable FDI inflow contrary to the global trend, experiencing only a slight decrease from US$121 billion in 2015 to US$98 billion in 2016. Note that the top sources are EU, Intra-ASEAN, US and Japan. [1]

But this amount cannot be said to have a significant impact on economic development. Almost 75% of ASEAN’s total FDI flow went to services, the bulk of which amounting to US$33.6 billion went to the financial and insurance sectors. Industry accounts for only 18% or US$17.3 billion, with Japan as the top contributor, investing US$21 billion particularly in manufacturing.[2]

Also, being a mere part of the global assembly line, the largest share of ASEAN’s trade went to intermediate goods in terms of both exports and imports.  Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and `parts and accessories of such articles topped the list for exported and imported commodities at 23.6% and 20.3% respectively.

3.       Peddling the labor force 

Since it opened its economy as a bloc, TNCs from developed countries were immediately captured by ASEAN’s large cheap labor force. In 2016, its working age population was at 430 million or 67.8% of ASEAN’s total population.[3] Low labor costs had electronics companies such as Korea’s Samsung and LG and America’s Intel building factories in Indonesia, Thailand, the Philippines and Vietnam. The biggest winner in this race to the bottom is Vietnam, FDI inflows to which rose by 7%.[4]

Aside from slave-like wages, the global assembly line also brought with it intensive labor exploitation and abuse. For example, workers at garment factories that supply America’s Walmart in Cambodia are already denied of benefits and receiving harsh penalties for engaging in union activities including retrenchment, they are also forced to work overtime even during the hottest season resulting to mass collapsing episodes. Complaints of sexual harassment were also reported.

Aside from its large pool of cheap labor force, ASEAN also sells its massive captured market. Its 2016 population of 635 million is the 3rd largest population in the world next to China and India.[5] Singapore is the largest host of TNC headquarters in the region targeting the Asia and Pacific markets.[6] One of the reasons why Japanese zaibatsus like Toyota, on the other hand, chose Thailand to be its regional hub is because it is the regions’ leading consumer and market for automotive products.[7]

4.       Hampering national progress 

This ASEAN “openness” has in fact closed the door to the development especially of backward economies such as the Philippines. Prospects for rural development and domestic industrialization have stayed grim due to the economic framework and policies of countries that follow the mantra of so-called “globalization”.

The share of production to Philippine gross domestic product (GDP) steadily dropped from 60% in the 1950s to the 1970s to just 39.2% in 2016. Agriculture fared no better dropping to 9.2% from more than 30% during the same time span. Manufacturing managed a 24.3% share in GDP in 2016 but it is also noteworthy that 63% of the gross revenue of the top corporations in manufacturing went to foreign TNCs.

Government’s hollow manufacturing drive can be gleaned from the Comprehensive Automotive Resurgence Strategy (CARS) which favors already dominant Japanese, American and Korean automotive companies. It is also very import-dependent. The local content of the Philippine automotive parts sector is only 40% and many of its products involve the mere assembly of car parts components. Over 90% of automotive parts that the country exports are produced by TNC subsidiaries or affiliates, including the Japanese zaibatsusand German firm Telefunken.[8]

If ASEAN indeed opened opportunities for the Filipinos, it is mostly for old time big players like Tan-Caktiong, Ayala and Aboitiz. Almost 4 decades of ASEAN integration has not improved the lives of the majority of the Filipinos. There are still 66 million Filipinos living at Php125.00 per day and worse still are the 21.9 million Filipinos struggling at Php60.00 per day. Combined unemployed and underemployed Filipinos have reached 11.5 million. Only a little over half of employed Filipinos are paid at least the minimum wage, the highest of which is in the National Capital Region at Php516 per day, which is not even half of the Php1,130 per day Family Living Wage that a family of six members needs to live decently.

5.       Non-adoption of principles of genuine cooperation

ASEAN pushes partnerships and engagements that are highly favorable to capitalists disregarding its effects to the majority of its people. This is contrary to what history has seen to be doable alternatives to regional formations like the ASEAN– such as the 1955 Bandung Conference or the Asian-African Conference. It was attended by 29 countries representing some 1.5 billion people or the majority of the world’s population at the time. It “considered problems of common interest and concern to countries of Asia and Africa” and its primary objective was to “discuss ways and means by which their people could achieve fuller economic, cultural and political co-operation.”

It declared the global South’s agenda to reform the international system to one not defined by power, oppression and exploitation, starting with the decolonization of the Third World. Participants envisioned economic development, and an end to colonialism. The ‘Dasa Sila Principle’ or the conference’s ten principles which promotes world peace and cooperation is still relevant today.

For a country like the Philippines to engage effectively with other nation-states for cooperation and against the domination of capitalist powers, it must also prioritize national development and the welfare of the people. Continued adherence to the neoliberal framework runs counter to this. It should be replaced with pro-people economics putting primacy in supporting its productive forces by implementing policies for agrarian and rural development and building national industries.

There is nothing wrong with forming communities. But communities should serve the interests of the majority of its stakeholders. The Philippine government’s avid participation in the ASEAN community has been consistent with its historically pro-business and pro-foreign stance. A strong clamour from the ground is needed to push for national development and foreign policies that will genuinely benefit the people.###

[1] ASEAN Sectretariat – ASEAN FDI Database as of 31 October 2017

[2] ibid

[3] Celebrating ASEAN: 50 years of Evolution and Progress A statistical publication, July 2017

[4] UNCTAD, World Investment Report Chapter II, 2017

[5] ASEAN Economic Integration Brief, June 2017

[6] UNCTAD, World Investment Report Chapter II, 2014

[7] CARS and National Industrialization, IBON Facts and Figures, Feb. 2017

[8] ibid

From iStock

IBON Foundation Statement for the Regional Comprehensive Economic Partnership (RCEP) Stakeholder Consultation Interface with DTI and Key Agencies
Manila, September 4, 2017

IBON welcomes this opportunity to interact with the DTI and key agencies on their negotiations for the Philippines on the RCEP. We look forward to hearing from our country’s negotiators. We also continue to hope that the veil of secrecy over the negotiations will be lifted so that there is real, and not merely token, public participation.

Still, what we know of RCEP and the government’s economic thinking is enough to make us extremely concerned that the Philippines is giving up economic sovereignty and sacrificing development in misguided pursuit of an obsolescent neoliberalism.

Traditionally accepted principles of international law state that the sovereign powers of a nation include the power to exclude alien persons and property. Customary international law also provides for governments taking measures considered necessary to protect essential security interests and to maintain public order or the protection of public health, morals, and safety.

Surely our vital interests include economic survival, the provision of essential services, the preservation of the environment, and the well-being of our population.

Yet the RCEP in so many ways attacks our vital interests. Or we could be wrong – despite formal requests, we do not have copies of the negotiating texts and so can only guess.

Does the Philippine government reject unduly expansive definitions of ‘investment’ and ‘expropriation’? Foreign investor-biased definitions increase the threat of legal disputes and economic sanctions.

Does the Philippine government reject prohibitions on performance requirements? These are essential for foreign investment to contribute to national development.

Does the Philippine government reject prohibitions on subsidies, trade protections, and other measures of state support? These are vital for Filipino agricultural and industrial producers to develop especially against foreign competition which grew from previous state support.

Does the Philippine government reject ISDS for giving corporations excessive rights to take it to task? We should preserve the power of the state and domestic courts.

Does the Philippine government reject obligations to preserve intellectual property monopolies? Stringent self-serving controls on knowledge to preserve monopoly profits hinders productivity increases, limits access to medicines, drains resources, and much more.

The Philippine government should reject these and many other likely policy impositions of RCEP.

There is nothing wrong with going regional, being comprehensive, getting economic, and entering a partnership. But it is so wrong to join an RCEP that disregards the right of the Philippines to have the policy space to pursue real development policies. The RCEP will prevent the Philippines from pursuing state-led national industrialization.

It is wrong to add yet another FTA to the country’s growing list of neoliberal FTAs that lock us into a path of agricultural backwardness, shallow industry, illusory growth, poverty and underdevelopment. Foreign capital and only a few of the richest Filipinos in just a few regions have prospered.

Fear of being left out is a poor argument because we give up so much. There is also less and less to be gained from foreign markets because of the protracted global crisis. Being part of transnational global value chains is not development if RCEP blocks domestic linkages and technology spillovers.

Voluntarily giving up policy space is not exercising sovereignty. And being part of an interdependent global economy does not mean surrendering national aspirations for equitable and sustainable development.

Let us preserve or indeed expand the possibilities for using tariffs and trade policy, taxation, subsidies, local content, technology transfer mechanisms, government procurement, capital controls, stricter regulation of foreign investment and other measures for development. These are among the most important policy tools that China, Japan, South Korea, India and others have used to develop. We should not let them stop us from doing what they did or, even worse, convince us that it is for our own good.#

From English CCTV

Research group IBON expressed concern about the secretive and undemocratic proceedings of the Regional Comprehensive Economic Partnership (RCEP) especially considering its apparent significant impact on the country’s economy, economic sovereignty and people’s welfare. The group said that it is the Duterte administration’s responsibility to ensure genuine transparency and public consultation to uphold the interests of the country and prioritize the Filipino people.

IBON raised these concerns as stakeholders participated in a dialogue regarding the new generation free trade agreement (FTA) with the Bureau of International Trade Relations (BITR) under the Department of Trade and Industry (DTI). An intersessional RCEP meeting is among the events during the upcoming Association of Southeast Asian Nations (ASEAN) Economic Ministers Meeting.

Since RCEP negotiations began in May 2013, very little has been revealed, mainly through three leaked chapters, about the sixteen-chapter agreement. Governments involved remain mum on the actual proceedings and outcomes of these rounds, said IBON. RCEP talks aim to further liberalize markets by institutionalizing rules on dispute settlement and investment protection, investments, intellectual property, and migration, among others. These rules are detrimental to underdeveloped countries like the Philippines.

IBON said that among the leaked contentious RCEP rules is the investor-state dispute settlement (ISDS) provision that rich countries like Japan and Australia have reportedly been pushing in the negotiations. Under this provision, foreign investors of RCEP member countries can sue the Philippine government at an international tribunal should it undertake measures they deem unfavorable to their commercial interests. This impinges on the country’s sovereignty to regulate investments and protect the public’s interests, aside from the burden of exorbitant litigation costs.

Another RCEP provision unfavorable to Filipinos is on intellectual property rights (IPR), said the group. This IPR provision will allow extended patents on important and life-saving medicines, resulting in even higher medicine costs. Filipino farmers will also be affected since the IPR provision translates into more expensive seeds and could lead to their bankruptcy. The Philippines, once RCEP is approved, will be required to join the 1991 Union for the Protection of New Varieties of Plants (UPOV) Convention which privatizes seeds, and requires farmers to pay royalties on commercial seeds. Farmers will be prohibited from exchanging with each other commercial seeds saved from a harvest.

The RCEP prohibition on performance requirements for foreign investors that China is pushing also prevents the country from implementing policies to develop local industries and advance the public welfare. Yet these local content, technology transfer, and trade controls and requirements are essential policy tools to get real benefits from foreign investments and to build Filipino industry.

IBON said that meaningful public debate and engagement on these controversial provisions are hindered due to the secrecy of the RCEP negotiations. The group said that the Duterte administration should not sign onto an FTA that advances foreign investor and big business interests at the expense of genuine domestic development and public welfare. ###


By Arnold Padilla

Part 2 –  The more far-reaching implication of the RCEP is on the country’s sovereignty in regulating foreign investments and in designing and implementing development plans that would serve the national interest and public welfare. FTAs like the RCEP want to further erode the mandate of governments and other state institutions. This is in order to create the most unrestricted setting for foreign capital to operate.

Weakening state regulation

One of the contentious issues that have emerged in the RCEP negotiations is the issue of the investor-state dispute settlement (ISDS) that will make the investment chapter of the proposed agreement enforceable.

Through ISDS, foreign corporations from RCEP countries could legally oblige RCEP governments to implement the deal’s provisions on investment protection and file charges before an international tribunal in case the latter fails to fulfill such obligation. Note that the ISDS as a means to settle disputes is a one-way mechanism, i.e., only investors could avail it and not the states.

Governments often lose cases in ISDS, with one report claiming that foreign investors win in seven out of 10 cases against RCEP governments. Worse, even when they win, governments still have to shell out for legal fees 70% of the time.

For really poor countries, the legal fees alone are already daunting that they are willing to settle the dispute “amicably” (e.g., drop the law or regulation being disputed by the investor). Worse, these arbitration proceedings are shrouded in secrecy and do not recognize any form of public participation.

In the Philippines, international arbitration of investor-state disputes is often built in concession agreements under privatization or public-private partnership (PPP) contracts, or in bilateral investment treaties (BITs) that affected foreign investors could invoke.

An ISDS in RCEP further widens the coverage and institutionalizes the use of international arbitration carried out by unaccountable foreign tribunals. Investors exploit it to undermine government policies or regulatory decisions that aim to protect public interest.

The most recent case of ISDS in the country is the Php3.42-billion claim that a Singapore-based tribunal decided in favor of Maynilad Water Services Inc. The case stemmed from the refusal of regulators to implement the water firm’s rate hike as they questioned the legitimacy of charging the income tax and other expenses to the consumers. The amount being claimed represents Maynilad’s supposed revenue losses arising from unfavorable regulatory decisions and actions.

This shows how through the ISDS private and foreign investors could challenge the regulatory authority of the Philippine government, even bypass the local judicial system, and undermine public welfare to protect their commercial interests.

Undermining sovereignty in development planning

Among the most common reasons that triggers an ISDS is the so-called “fair and equitable treatment” of foreign investors, which reports indicate is one the rights that negotiators want to guarantee for RCEP investors.

Fair and equitable treatment is interpreted by international tribunals as including a “standstill” on laws and regulations, according to critics of the RCEP. It means that RCEP governments are not allowed to revise or amend their existing laws if it would harm the interest of RCEP investors.

The standstill principle is problematic especially for underdeveloped countries like the Philippines. As pointed out by RCEP critics, governments need flexibility in crafting laws to better respond to changes in external conditions such as financial crisis, climate change, etc.

Many poor countries do not have the needed laws yet or a sufficient regulatory capacity to deal with emerging economic, environmental, and other issues, of which they are more vulnerable to, that may impact on their development and people.

Another implication is that it would further tie the hands of government in reversing neoliberal policies and programs that have been causing massive economic and social harm. For the Philippines, which has deeply liberalized in the past four decades, RCEP will make it even more difficult, for instance, to institute policy reforms to deal with the impact and correct the unbridled entry of imported goods that has hampered local industries and livelihood.

Investment regulation to address policy and development issues would also be greatly compromised. With the standstill principle, government could only increase (liberalize more) but not reduce foreign equity already allowed under existing laws in order to protect national interest and public welfare.

At present, key economic sectors and activities are already allowed to as much as 40% foreign equity that could no longer be reversed (without the risk of costly litigation in an international tribunal) under the standstill principle.

While RCEP investors gain more rights and power, the sovereignty of the state to determine and implement policies for economic development is further being curtailed under the RCEP. According to leaked documents, RCEP’s investment chapter includes proposals to restrict the ability of RCEP governments to require investors from any country to undertake activities that benefit the country they are investing in or the so-called “performance requirements”.

Performance requirements are one of the policy tools that governments, especially of underdeveloped countries, use to ensure that foreign investments benefit the local economy and people by among others linking to local suppliers (e.g., of services such as banking, accounting, advertising etc.), using local workers, and transferring technology.

In the Philippines, there are still some performance requirements that could be targeted for phasing out under RCEP such as the 2003 Government Procurement Reform Act (GPRA) that requires the public sector to procure goods, supplies, and consulting services from enterprises at least 60% Filipino-owned and infrastructure services from enterprises with at least a 75% Filipino interest.

Research and development is also somehow restricted from foreign participation in relation to restrictions on licensed professions such as engineering and teaching. In addition, the Board of Investments (BOI) also requires a higher export performance requirement on foreign-owned enterprises (70% of production) than on Filipino-owned companies (50% of production) when providing incentives under the Investment Priorities Plan.

Another possible impact of restricting performance requirements is on the use of export taxes. This is particularly crucial for poor countries to encourage local value addition and in establishing domestic linkages in the export sector for more beneficial impact on the local economy.

This would further undercut the Philippines’ industrialization efforts. It limits the potential use of export taxes to promote greater domestic processing of raw materials such as minerals, agricultural products, etc. instead of simply exporting them as such for processing outside the country.

Peddling the falsehood

Proponents of RCEP and greater liberalization peddle the falsehood that the unbridled flow of foreign goods and capital, and abandonment of state role and regulation in favor of market forces and profit-seeking corporations would bring about long-term economic development.

But decades of liberalization have only resulted in the underdevelopment of the Philippine industrial sector and the devastation of agriculture. While the harsh impacts on domestic industries are significantly felt, the promised benefits to poor countries are negligible at best.

Foreign trade and investment policies must be supportive of national industrialization and rural development. However, FTAs like the RCEP deprive the Philippines of the flexibility and space to design and use appropriate policy tools to make this happen. –IBON FEATURES

From Good News Pilipinas
By Arnold Padilla
Part 1-At the 50th anniversary of the Association of Southeast Asian Nations (ASEAN), President Rodrigo Duterte endorsed the Regional Comprehensive Economic Partnership (RCEP) deal.

RCEP is being negotiated by the 10 member states of the ASEAN plus six other countries that ASEAN has a free trade agreement (FTA) with or the so-called ASEAN+1 (i.e. China, Japan, South Korea, India, Australia and New Zealand).

In essence, RCEP is a continuation of the efforts to further open up and integrate the Philippine and regional economy of Southeast Asia to the global production and supply chain dominated by the industrialized economies and their corporations, a neoliberal offensive that has been going on relentlessly for four decades in the country with disastrous consequences.

RCEP participants have already conducted 19 rounds of formal (and secretive) negotiations since 2013. The Philippines will host intersessional ministerial meetings this September in preparation for the 20th Round, which will be held in Inchon, South Korea in October. Negotiators are hopeful that they would be able to conclude the proposed FTA within the year.

Overhyped claims on greater exports

One of the supposed benefits of RCEP is greater Philippine exports as tariffs are lowered. Such potential benefit however could be overhyped given that RCEP markets have already been opened up even prior to RCEP.

Intra-ASEAN trade under the ASEAN Economic Community (AEC) is already highly liberalized while the ASEAN+1 FTAs also already provide lowered tariffs for exports coming from the region. ASEAN tariff rates, on the average, are pegged at just 0.54 percent. In addition, the share of tariff lines in the region with 0% tariff rates is already at 96 percent.

Meanwhile, ASEAN+1 FTAs have also significantly reduced tariffs for goods coming from the ASEAN and its trade partners. Australia and New Zealand, for instance, have already committed to remove tariffs on all ASEAN products. Under the ASEAN-China Free Trade Area (ACFTA), China and the ASEAN members agreed to reduce to zero the tariffs on 7,881 product categories or 90% of imported goods.

Thus, it is doubtful whether RCEP could help in pushing for more exports of local goods, which are mainly raw, semi-processed and low value-added agri-food commodities anyway including canned tuna, fresh pineapple, mango, raw cane sugar, crude coconut oil, cut tobacco, bananas, coconut, and copra oil.

Aside from the already liberalized RCEP markets, structural issues such as a weak manufacturing base and underdeveloped infrastructure continue to hamper the national economy.

Real threats to sensitive local goods

While prospects for greater Philippine exports are limited the threat of more imports from RCEP suppliers loom including of commodities that are deemed socially sensitive in the country. One of the sectors to be gravely affected by RCEP that even proponents of liberalization recognize is rice.

A study funded by the Philippine Institute for Development Studies (PIDS) simulated the potential effects of RCEP on the economy and concluded with overall favorable results (e.g., “additional welfare of US$4.5 billion in 10 years”). But for rice, the study estimated that between 2014 and 2023, production would sink by 4.26% as import volume rises by a huge 33.15% under RCEP.

This is alarming because as liberalized as the economy has already become, moves toward greater liberalization continue under the country’s past commitments, including those that the country has previously protected from liberalization under the World Trade Organization (WTO).

While Duterte has extended the quantitative restriction (QR) on rice up to June 2020, his economic managers are pushing for its permanent removal and for the imposition instead of a tariff that will also be gradually removed.

The current QR sets a limit of 805,200 metric tons (MT) of imported rice imposed with 35% tariff. A bill to implement this has already been endorsed as urgent (i.e. for legislation within the year) by the executive committee of the Legislative-Executive Development Advisory Council (LEDAC).

A more recent PIDS study projects that Philippine rice import volume could increase by 100% from the current 2.2 million MT to 4.4 million MT from 2017 to 2022 without the QR. An article posted by the Philippine Rice Research Institute (PhilRice) claims that lifting the rice QR with tariff at 35% could pull down the income of already impoverished rice farmers by 29 percent.

This as heavily subsidized cheap rice imports further flood the domestic market, compete with local rice produced by Filipino farmers who do not enjoy the same support measures that Thai or Vietnamese farmers do, and depress more the farmgate price of palay.

According to estimates by the Department of Agriculture (DA), local palay’s production cost is at Php12 per kilo whereas in Vietnam, it is only about Php6 a kilo. Then there’s also the persistent and rampant smuggling of rice, which import liberalization has further facilitated.

Trade negotiators of the country have said that rice is included in the sensitive sectors that they intend to protect in the RCEP discussions. But such protection is already highly limited given that the country could not offer in the RCEP below what it will commit in rice trade liberalization under the WTO or other ASEAN+1 FTAs as set out in RCEP’s guiding principles on negotiations.

Furthermore, the 35% tariff is already the existing ASEAN rate and thus it will be tough for Philippine RCEP negotiators to increase the tariff such as to 70% as proposed by some economists to compensate for the QR lifting.

Food security and rural development

Advocates of liberalization often ignore the fact that while importing countries are bound by FTA commitments to keep their economic sectors opened, exporting countries do not have the same obligation to supply when their own national interests are at risk. The problem that such situation creates becomes more pronounced when dealing with traded goods as sensitive as rice.

In recent years, land use conversion and climate change have been affecting the Philippines’ main sources of rice imports while food speculation has been driving up global rice prices. As rice self-sufficiency is dropped in the name of liberalization, these adverse external developments further put the country’s food security in serious jeopardy.

As staple food, rice is not just directly linked to national food security but also to rural development. In 2016, palay accounted for almost a quarter of the gross value added (GVA) in agriculture at current prices, based on Philippine Statistics Authority (PSA) data.

However, its GVA has been falling by 10.4% annually from 2014 to 2016 (contributing to overall agriculture decline of almost 1% yearly), a trend that will surely worsen with greater liberalization and a deluge of rice imports under RCEP and WTO.

Rice liberalization is said to directly and indirectly impact close to 20 million Filipinos, or about a fifth of the national population including some 2.5 million small farmers and others whose livelihood relies on the rice sector.

Sugar cane plantation. Khanh Hoa province. Vietnam
​​The fight of Filipino peasants such as the farmworkers of Hacienda Luisita and Lapanday Foods Corporation for land, food, and justice, stands to be further undermined once the Philippine government fully accedes to the China-backed mega Free Trade Agreement (FTA) Regional Comprehensive Economic Partnership (RCEP).
While the controversial Trans-Pacific Partnership (TPP) was seemingly put off by United States president Donald Trump, RCEP is now a major highlight in the currently Philippines-chaired Association of South East Asian Nations (ASEAN) meetings towards its 50th year summit in November this year. Millions of Filipino farmers will be among those at the losing end of the RCEP agreement which intends to remove all remaining protection over the Philippine economy towards unhampered trade and investment. Here are the reasons why:

1. RCEP threatens the country’s food security. A Philippine Institute for Development Studies (PIDS)-funded study shows that rice production would sink by 4.3% as import volume rises by a huge 33.15% under RCEP.  Another PIDS study projects that Philippine rice import volume could increase by 100% from the current 2.2 million metric tons (MT) to 4.4 million MT from 2017 to 2022. This is especially when the Philippine quantitative restriction* (QR) on rice under the World Trade Organization’s (WTO) Agreement on Agriculture is lifted this July. 

Studies show that the income of already impoverished rice farmers will drop by 29% upon the lifting of the rice QR. This is because subsidized cheap rice imports will flood the domestic market, compete with local rice expensively produced by Filipino farmers who lack State support, and depress more the farmgate price of palay. The Philippines is among the five RCEP countries in the list of the world’s biggest rice importers.
Weakening rice production will lend to shrinking agricultural production. While palay used to account for almost one-fourth of the gross value added (GVA) in agriculture at current prices, its GVA has been falling by 10.4% annually from 2014 to 2016, contributing to overall agriculture decline of almost 1% yearly.
This trend will worsen with greater liberalization and a deluge of rice imports under RCEP and WTO. This will impact on the livelihood of close to 20 million Filipinos, or about a fifth of the national population, made up of 2.5 million small farmers, several hundred thousand farm laborers and other workers involved in the supply of farm inputs and machinery, milling/processing, warehousing, transport, other services, and related economic activities. It will impact on the entire nation’s food security, much more that of the direct food producers.
FTAs like RCEP will also open up countries’ natural resources further to foreign investments. Pushing amendments to the Philippine Constitution to make it attune to investment liberalization can lead to full foreign ownership of arable lands, converting more land supposedly devoted to food and other national needs to profit-seeking ventures of few big and foreign corporations, such as ecozones and tourism complexes. This will worsen the country’s food insecurity and make land distribution to farmers even more remote.

2. RCEP will pose a threat on poor Filipino farmers who rely on saving and exchanging seeds for their planting needs.  In Asia, it is said that farm-saved seeds account for as much as 90% of all seeds used in the region. But the long tradition of farmers of saving and freely exchanging seeds among themselves has been under relentless attack by big agribusinesscorporations promoting Intellectual Property Rights (IPR)-protected agrochemical-intensive seeds including the so-called high-yielding varieties (HYVs), genetically modified (GM) seeds, as well as hybrid seeds.

There are alarming proposals that may privatize farmers’ seeds through RCEP: first, Japan and Korea’s proposal that all RCEP countries join the UPOV 1991**; (2) Japan’s proposal to ‘criminalize’ seed saving; and (3) India’s proposal to codify traditional knowledge and make it available to patent offices. FTAs like RCEP allow corporations to rake in bigger corporate profit by displacing farmers’ seeds and replacing them with patented, commercial seeds that farmers have to buy. This will also mean more expenses and greater bankruptcy and poverty for farmers.

3. RCEP will further restrict the Philippine government from using policy and regulatory tools to promote national economic development.

​ ​

“Fair and equitable treatment” of foreign investors is one of the rights that negotiators want RCEP to guarantee. This pertains to a “standstill” on laws and regulations, according to critics of RCEP. It means that RCEP governments are not allowed to revise or amend their existing laws if it would harm the interest of RCEP investors.

This principle is problematic especially for underdeveloped countries like the Philippines. Many poor countries do not yet have the needed laws or a sufficient regulatory capacity to deal with emerging economic, environmental and other issues, to which they are more vulnerable, that may impact their development and people. For instance, RCEP will prevent the country from advancing a genuine agrarian reform program that would distribute land for free to tillers and institute sufficient support services to farmers and farmworkers as central to a genuinely people-centered development program.
It will also further prevent government from reversing neoliberal policies and programs that have been causing massive economic and social harm. Thus, RCEP can also hinder the Philippines from revoking trade and investment policies that have caused the deterioration of the agriculture sector and that currently opens the country’s land and agricultural resources for big and foreign corporations to plunder. 
Additionally, one of the contentious issues that have emerged in the RCEP negotiations is that of the investor-state dispute settlement (ISDS). With it, foreign corporations from RCEP countries could legally oblige RCEP governments to implement the deal’s provisions on investment protection and file charges before an international tribunal in case the latter fails to fulfill such obligation. Reports say that foreign investors can be considered to have won 67% of such cases against RCEP governments, but with the latter having to shell out for legal fees 70% of the time. For countries like the Philippines, whose poor majority are farmers and fisherfolk, the ISDS is not only another financial burden but an affront to the sovereign will of a nation to decide what is best for its people.

4. RCEP will not necessarily increase Philippine food and agriculture exports and will further undermine the country’s agriculture sector. Philippine trade officials claim that the Philippines would push for more exports of local goods in the RCEP to include agri-food commodities such as canned tuna, fresh pineapple, mango, garments of synthetic fibers, raw cane sugar, crude coconut oil, cut tobacco, bananas, coconut, copra, and cooking oil. But the country could not expect to increase exports or substantially gain from more trade liberalization. RCEP markets have already been opened up for Philippine productss in the past, but the country has not taken advantage of this so-called market openness. This is because the country’s weak manufacturing base and underdeveloped infrastructure continue to hamper any potential to improve production. In other words, the country needs to focus more its efforts on developing domestic production for domestic consumption, instead of the competitive yet uncertain markets.

Trade and investment liberalization has only seen the deterioration of the Philippine agriculture sector, increasing agricultural deficits and the deluge of foreign products to the detriment of the Filipino farmers. 
FTAs have not served the country’s development contrary to promise. Instead of agreeing to FTAs, the government should seriously consider breaking free from unequal agreements the Philippines is already in and refuse to be bound to more of the same.

*Quantitative restriction (QR) limits rice importation into the Philippines to protect Filipino rice farmers and consumers
**UPOV 1991 or the 1991 Act of the International Union for the Protection of New Varieties of Plants is a set of common standards on how countries should implement plant variety protection. But it is biased towards seed companies whose patented varieties are protected, which farmers could not save nor exchange unless they pay or government allows it. 

By Manix Abrera

IBON Foundation Statement for the Stakeholders’ Meeting of the Trade Negotiating Committee (TNC)18th Round of Negotiations on the Regional Comprehensive Economic Partnership (RCEP)
Manila, May 10, 2017

Our countries should not be prevented from implementing real development policies. After over three decades of globalization we need to reclaim our economic sovereignty, not erode this even further.

IBON Foundation welcomes this stakeholder engagement. However, as with many other civil society organizations (CSOs), we find the general secrecy surrounding the Regional Comprehensive Economic Partnership (RCEP) and the correspondingly very limited public participation to be very disappointing.

Our organizations are keen to analyze and discuss the terms of the RCEP for their far-reaching impact on tens of millions of Filipinos and hundreds of millions of others across RCEP negotiating countries. We have made many formal requests to various governments for copies of the negotiating text so that they could be analyzed and discussed among the workers, farmers, and other marginalized sectors. These requests are unheeded and we have had to rely on extremely sketchy information and on so-called leaked texts.

The consequent absence of meaningful participation is not consistent with the principles of democracy and inclusiveness that our governments often espouse.

Secondly, it is often argued that we have to enter free trade agreements (FTAs) or else be “left out” and lose out. This is a poor guide to economic policymaking. The measure of success is not of being able to avoid being “left out” but rather if economic development has been or is being achieved. That defeatist position has resulted in the Philippines steadily liberalizing and opening its markets over the last three decades. The negative Philippine experience is something that we invite our neighbours to learn from.

The Philippines is party to six (6) FTAs, one (1) bilateral FTA, various agreements under the multilateral World Trade Organization (WTO), and at least 31 bilateral investment treaties (BITs). These are aside from a whole range of market-oriented domestic laws and policies. These have made the country already more open than its neighbours in Southeast Asia in many aspects of foreign trade and investment.

These neoliberal policies have kept agriculture backward and caused it to decline to its smallest share of the economy in history. Filipino industry has been in decline for decades and is already a smaller share of the economy and employment than in the 1950s; some 20 firms have been closing on average every day since the 2000s. This has been compensated for by the bloating of a largely low value-added and low productivity service sector.

It has also resulted in the worst crisis of joblessness in the country’s history. There is unprecedented unemployment in the country especially if we also count all the discouraged workers who dropped out of the labour force from finding no work around. We estimate an unemployment rate of over 10% with over four (4) million unemployed Filipinos. On top of this is the greatly worsening quality of work – real wages have fallen to lower than they were fifteen years ago in 2001 and nearly two-thirds (63%) or 24.4 million of those employed are in non-regular, agency-hired, informal sector or unpaid family work. This severe domestic job scarcity has forced some 11-12 million overseas Filipino workers to find work abroad to support themselves or their families, suffering separation and a host of abuses.

All this while a few families have become even richer and a few large corporations have become even more profitable. This is very alarming. We don’t want more policies of inequality and underdevelopment.

Thirdly and overall, we then have serious reservations with RCEP which is a race to the bottom for countries to give the most favourable conditions for capital even at the expense of people and national development. Many of the specific areas of concern have already been well-articulated by colleagues from CSOs and people’s organizations. IBON has also submitted a position paper detailing the threats to Philippine agriculture (especially rice farmers) and industry, to people’s access to cheap generic medicines, and to farmers’ seeds.

We would like to add that Philippine economic policies are already shackled by profit-, market- and capital-driven trade deals and laws as it is. RCEP is an additional neoliberal shackle that is irrational and anti-development. RCEP is restrictive and for instance prohibits economic development policy measures listed as “performance requirements” or the use of trade barriers and other protections for domestic producers.

Yet such policies are exactly what RCEP negotiating countries China, Japan, South Korea, India and others have used to develop their industries to what they are today. Their positive experience with these is something that we should learn from. The double-standard for industrial policy and progress is already jarring — but the proposals for investor-state dispute settlement (ISDS) where corporations can bring our governments to secretive commercial courts for undertaking such measures in the national interest just make it worse.

Our countries should not be prevented from implementing real development policies. After over three decades of globalization we need to reclaim our economic sovereignty, not erode this even further.

For whom is RCEP? If it is so good for all, then the people should be brought in rather than kept in the dark. If the people are kept out, then this only underscores that RCEP is for the select few involved and not really for the people. ###



Research group IBON urged Philippine negotiators to reject proposals that may further restrict the policy options of the country in regulating foreign trade and investment.

IBON made the appeal as it joined other cause-oriented groups in a dialogue today with trade officials from the Philippines and other countries that are negotiating the Regional Comprehensive Economic Partnership (RCEP) in Manila. It stressed that RCEP and other modern free trade agreements (FTAs) target whatever is left of poor countries’ sovereignty in national economic policy-making.

The group said that as an underdeveloped economy, the country needs flexibility and independence in policy making to ensure that the national interest is protected when dealing with foreign goods and capital.

IBON cited as example the proposals reportedly obliging RCEP members to freeze existing national foreign trade and investment laws and drop performance requirements on foreign corporations. The standstill on national laws is meant to guarantee that the Philippines will not reverse current policies that already allow the domestic entry of foreign goods and capital.

Performance requirements, meanwhile, are measures that government uses to compel foreign investors to fulfill certain conditions to operate in the country. These provisions are being discussed in the RCEP in the context of giving foreign investors a “fair and equitable treatment”.

But IBON argued that such proposals would further tie the hands of the Philippines in determining the appropriate policies and programs on foreign trade and investment. It pointed out that a standstill on national laws under RCEP would deprive the country of the policy option to reverse or even just scale back its aggressive liberalization.

Under RCEP, for instance, among those expected to be hit hard is rice with local production declining amid a massive surge in imports. But a standstill on current policies on rice including the lifting of quantitative restrictions by July this year under the World Trade Organization (WTO) would prevent any meaningful intervention from government to protect this socially sensitive sector. Almost 20 million Filipinos who directly or indirectly rely on the rice industry including 2.5 million small palay farmers would be affected.

In addition, the planned restriction on the use of performance requirements under RCEP would undermine more the capacity of government to regulate foreign investments in a manner that serves the local economy. Performance requirements include policies such as requiring foreign investors to source locally produced goods; to export commodities only after substantial domestic processing; and to hire and train local technical people, among others. These requirements ensure that foreign capital helps build linkages in the local economy, helps strengthens rather than stunts domestic industries, and transfer technology and know-how.

IBON emphasized that investment regulation is just one of the many issues and concerns that the public must raise with the country’s trade negotiators in RCEP. Four decades of liberalization should give more than enough insights and lessons for the Philippine government to seriously reexamine the proposed regional FTA, the group said. ###

​IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.

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